Charge for reducing term

danielley

My mortgage product expires at the end of the month, so called my current provider (Skipton) to see what deals are available.

After being given the rates, I asked how much the repayments would be if I reduced the term. I was told the amounts, but also advised that if I do reduce my term, there would be a charge of £50.

I was a bit shocked, so I checked that the advisor understood that I meant changing term when I changed to a new product and they confirmed that it was correct.

Is this standard across the industry? Can anyone explain the justification for this?? I could understand that they may charge if you change midway through a product (just about) but not when you are in effect arranging a new mortgage.

The advisor also tried to steer me away from reducing the term, and instead go down the regular overpayment route as if circumstances changed I was not overcommitted.

Opinions anyone?

StuC75

If they allow overpayments without any penalty then go with that. If such a fee is listed on there tariff of charges in administering mortgage then its probably not something can argue against.

If theres an interest penalty for overpayments then would have to weigh up if that countered what saved by not paying a 1 off admin fee..

If its a shorter term then it may have to be treated as 'new product' or some form of underwriter involvement in terms of confirming affordability??

kingstreet

I'd leave the term as it is and make voluntary overpayments within any penalty limit to reduce the term that way. If you then need to go back to the contractual amount in a bad month, you have no trouble doing so...

danielley

I believe that I can make overpayments of up to 10% each year, which I will not exceed i'm sure

I suppose the extra charge for 'underwriting' services makes some sense, and without checking I'm sure it will all be in the T&C's, I just thought it was a little odd and almost as if they are discouraging you from reducing the term.

I am going to review all the options over the weekend, but I think that keeping the term the same, but overpaying is probably the best and most flexible option.

Thank you very much for your replies.

Thrugelmir

danielley wrote: »

I was a bit shocked, so I checked that the advisor understood that I meant changing term when I changed to a new product and they confirmed that it was correct.

Shortening the term involves a contractual change so will incur an administration charge. For producing the paperwork and amending the records etc. Hence why the advisor was suggesting just making overpayments. As there's no penalty for repaying your mortgage early. So use the £50 to overpay the mortgage instead.

dimbo61

We paid £50 when we reduced our mortgage term from 22 years down to 10 years but as it has saved us over £50,000 in interest I do not care!!!
We still had the option of increasing the term back up to 22 years if we paid another £50!
As others have said if you reduce the term then you have to pay the new HIGHER AMOUNT every single month without fail.
If you simple overpay every month then you can take a break at Xmas or summer hols

kingstreet

Not too long ago, we had a post on here which suggested someone had reduced their term, then when they wanted to extend it back to the original period, the lender wanted to treat them like they were in difficulty.

Nothing to do with fees, just one of those little things to watch out for!

Bufger

The only time you need to worry about reducing your term is when you're close to breaking your overpayment limit. Otherwise just overpay up to that limit and use the flexibility that its a voluntary contribution and if your circumstances changed you could stop any time you needed to.